Honesty is the Best Policy, Again – Antunes v. Limen Structures Ltd.

June 2016

For some time, the employment relationship has been held to a standard of good faith and fair dealing, at least in respect to the administration of the employment contract and especially upon termination of employment. Cases from the Supreme Court of Canada such as Wallace and Keays v. Honda have left the law of employment with a residual philosophy that fair dealing is expected of employers. All of which sounds sensible and kind of obvious to those who manage human resources. This is not so clear in the world of commercial contracts and recent developments in this area may have repercussions for employers.

Only recently was the organizing principle of good faith in contractual relations generally recognized by the Supreme Court of Canada. In the 2014 Bhasin v. Hrynew decision, the Court introduced a general duty of “honest contractual performance” that was expressly stated to apply to all categories of contractual relations.

In Antunes v. Limen Structures Ltd, the Court made use of this new general approach to contractual duties to award some interesting remedies to Mr. Antunes in a wrongful dismissal case. If this case is upheld and finds support in subsequent decisions, some relatively clear lines in the law of employment will be blurred until further clarification is delivered.

The Facts

Mr. Antunes was hired as a senior project manager and promised at least 12 months’ severance as well as shares in the company worth 5% or approximately $500,000 (if the spitball valuation represented to him pre-employment was to be believed). Mr. Antunes did believe the employer’s valuation, and he commenced employment thinking he would be entitled to that chunk of equity.

Not only did the shares in the company never materialize, but Mr. Antunes was fired five months after he started work.

The Decision

After a 3 day trial, the Ontario Divisional Court awarded Mr. Antunes eight months of common law damages and $500,000 in damages for the false contractual promise related to the shares. The Court cited Wallace and Keays v. Honda and, notably, the Bhasin case as well, stating that “a party to a contract must be able to rely on a minimum standard of honesty from the contracting partner in relation to performing the contract, with the reassurance that if the contract does not work out, they will have a fair opportunity to protect their interests.”

Because of the false pre-contractual statements, Mr. Antunes was denied the opportunity to protect his interests, which was the expected value of the shares, and damages flowed from that contractual breach.

What Might This Mean For Employers?

While reasonable in light of the expectations created by the employer’s representations and the fact that Mr. Antunes advanced a claim of both breach of contractual and negligent misrepresentation, the result in this case arguably marks a departure from earlier approaches taken by the courts to pre-contractual representations in hiring.

The difference is in the way the remedy is calculated: previously the courts awarded tort damages which are intended to return the person to their pre-representation state, imagining the financial situation of the person had the false statements never been made. Contract damages, such as those awarded in the Antunes case, are intended to compensate for the value of the broken promise and are based on the expected benefit. The economic outcomes in litigation can be different.

Thus, while the “general duty of honest performance” imported by the Supreme Court of Canada into the general law of contract may seem like motherhood and apple-pie in the law of employment, the wider avenues that may emerge for arguments about damages flowing from unfair, dishonest or other improper behavior by employers could make outcomes in employment litigation less predictable until the subtleties are clarified by the courts.

The Antunes case is under appeal. In the meantime, in an era where recruitment for skilled positions is cut-throat, this case highlights the need for employers to develop and execute a clear plan to guide recruitment and hiring. Employers should give careful consideration to the message it is delivering to candidates, rather than shooting from the hip from a philosophy of selling the role and closing the deal. Careful and conscientious recruitment is not only a best HR practice, but also a tool to manage legal risk that is growing higher and higher every year.